Bitcoin has been in a downside since December 2017 when it reached its high of $19,843 USD. Since then prices have fallen sharply and it currently trades around the $6,500 range as of late August 2018. That’s a drop of about 2/3 of its value in eight months’ time. So where is bitcoin headed next? Well I will give you my insights on that based on my technical research — and it might surprise many.
This is a guest post by Vic Patel, head trader at Forex Training Group
Technical Analysis Basics
Firstly, I should note that I specialize in a subset of technical analysis which combines Elliott Wave analysis, Fibonacci studies, and price action. I find that this combination provides a better insight into the likely direction of price than anything else I have found. If you are not well versed in this type of analysis, you will still be able to take away a lot of value and should be able to follow along fine.
So, let’s begin. Firstly, a very basic primer on Elliott Wave analysis that you should understand. Based on this theory, price movement can be tracked in waves, and the waves consist of an impulse sequence, where waves 1, 3, and 5 move in the direction of the main trend, and where waves 2 and 4 react against the main trend. Following the 5-wave sequence, prices will move countertrend, typically in an A,B,C correction. After the C leg has been put in place, then we can expect a resumption of the prior trend.
Let’s Look at the Charts
Ok so let’s now dissect the price action of bitcoin by analyzing the BTCUSD daily chart below:
Starting in early 2017, we see that the price of bitcoin started to move to the upside. By September 2017, prices were trading around the $4,800 range, and topped forming the first wave labeled 1. After that, we would expect a retracement around the 61 percent level to form the bottom for wave 2. As you can see wave 2 formed very close to the 61 percent Fibonacci retracement level.
The price rallied from there sharply which is characteristic of wave 3. Wave 3 is typically the sharpest wave with the steepest slope. This is where there is broad participation in the security and price moves, with a high level of momentum. From our chart, we can see that wave 3 peaked in early December, closing around the $16,500 level. Wave 4 is usually a prolonged wave with profit taking activity, but in this case, we saw a very short and subdued wave 4. Then the final wave in the impulse sequence was completed when wave 5 topped just short of the $20,000 mark.
From mid to late December 2017 prices began to fall quickly and sharply, and when the wave 4 low was taken out, that would have provided us a heads up that a corrective sequence may have been forming. This is exactly what happened, and wave A completed the initial down leg in February 2018. We knew to expect wave B following the Wave A bottom. Though Wave B is typically a 50-61 percent Fibonacci retracement of the wave 1 leg, in this instance, Wave B retraced less than that. One reason for this is that the extreme volatility and momentum in wave A caused a flood of selling pressure which was too high, and any demand to support the price was fading fast at the time.
The Complete Pattern Begins to Show
Now turning to the final Wave C, we can expect it to be a 5 wave sequence or an ending diagonal comprised of 5 overlapping legs. In this case, we can clearly see the ending diagonal pattern of Wave C. The legs of the Ending Diagonal are noted 1-2-3-4-5. Wave 5 of the ending diagonal is not yet complete. It will need to fall below the wave 3 of the ending diagonal and bounce up before the pattern is fully completed.
When an Elliott 5-3 pattern is completed, we can expect a new impulsive 5 wave sequence to begin. So, when the 2-4 trend line is breached to the upside, then prices will likely move sharply higher to test the wave B extreme of $11,500. This will likely form the new wave 1 of the impulse sequence. I project that by year end this is exactly what will ensue, and bitcoin will start a new uptrend following this sequence of events. The 2-4 trend line is critical, and the diagonal pattern confirmation and Elliott 5-3 sequence end is dependent on that occurring.
Vic Patel – Technical Analyst
This analysis was done by Vic Patel. He is the founder and head trader at Forex Training Group. He uses a combination of Elliott Wave, Fibonacci, Market Cycles, and Price action in his technical approach to market timing.
What do you think will happen to the bitcoin price? Share your thoughts in the comments section.
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